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How should I tax a discount where the full price can be later charged if they breach contract?


We have contract with new customer where we discounted the selling price of an item from $65.00 to $1.00. That customer will have to pay $64 if they break the contract before the contract term. 


Avalara Avatax


  • Typically tax is calculated on the post discount amount.
  • If they then later break contract you will create a separate invoice for that breach of contract.
  • Tax is calculated on that amount at that time.

NOTE* This is not legally binding tax advice rather a typical break down of what usually happens in these situations. For a CPA or tax expert's official stance on this in relation to your specific business you'll need to speak with the Department of Revenue / Board of Equalization or a CPA.





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